10 April 2019

Fighting financial crimes requires better tech and collaboration

Financial crime is a trillion-dollar problem and the human cost is very real affecting every part of society: terrorism, facilitating drugs, prostitution or human trafficking trade, and increasingly through cybercrime.


And it’s nearer home than you think. In August last year, a Singaporean businessman was accused by the United States authorities of money laundering and helping North Korean entities evade US sanctions. The FBI has placed him on its “Most Wanted” list1.

Banks have a legal, regulatory and moral obligation to protect the financial system against use by criminal actors. It is the right thing to do and we need to be able to manage this risk. The industry as a whole has to be willing to make the investment to do so.

It is a fact that fighting financial crime is costly and difficult. Despite an estimated US$8 billion spend on anti-money laundering controls in 2017, less than 1% of the criminal funds flowing through the global financial system are thought to be frozen or confiscated2.

The truth is, we are reaching the limits of what can be achieved with our current approach. 
We can only move beyond these constraints with better use of technology and if banks work in closer partnership with each other and law enforcement.

Both will help banks get smarter in the way that they look for suspicious transactions and identifying people who try to abuse the financial system, but neither are easy solutions and raise important issues for banks, policymakers and regulators to consider. 

Our current way of looking for suspicious activity using traditional, rules-based scenarios and methods is like looking for a needle in a haystack. It is costly and involves generating many false positives alerts for investigation which are both increasingly ineffective and inefficient.  As an industry, we only use a small amount of the data available to monitor and screen customers and transactions. It targets broad segments which produces false alerts about suspicious activity.

We need to become more intelligence-led and harness the potential of data and apply tools like machine learning and artificial intelligence to analyse it. Developing technology to interrogate data and recognise patterns in ways that are not possible now, will give us far more insight into individual transactions.

New systems may tell us, for example, that an abnormally large payment is actually the deposit on a house paid to a legal firm and so not of concern. It will result in banks being far more specific about the information that they pass to law enforcement.

As a bank, we process hundreds of millions of transactions a month. To monitor that volume of transactions, you have to be able to automate those systems.

Since 2015, HSBC has invested over US$1bn in new and upgraded systems to help detect and analyse financial crime. A new transaction monitoring system can analyse approximately 550 million transactions each month. Daily checks are also run on over 400 million records for clients and customers to check for names on sanctions lists.

But we also need to complement that with information sharing. In today’s world, it’s just not practical to work in silos. After all, when you discover a bad actor and kick them out, chances are they’ll just go across the street to another bank.

A single bank may see only part of the picture. If we can have conversations with other institutions, we can put together a much richer picture of the network, so what goes to law enforcement would be more effective. Otherwise, we are passing half the puzzle to them, and they have to pick up the Suspicious Activity Report (SAR) and add all the bits together by going out to other institutions. 

Partnerships between banks, regulators and law enforcement have already been formed in most of the major financial centres. They enable more data to be shared between banks and public bodies.

In Singapore, a private-public partnership on money laundering and terrorism financing was launched by the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) last year to improve sharing of information3. HSBC is the only bank to be a member of all the established public-private partnerships in financial crime4. These are already delivering successful outcomes for law enforcement.

Information from law enforcement can help banks to better focus their search for suspicious transactions, while data from banks enables law enforcement to see the ‘bigger picture’ resulting in more illegal assets seized and criminals prosecuted.

The value of a partnership in detecting financial crime was seen in a case cited by the UK’s National Crime Agency (NCA)5. Thanks to information provided by banks, the NCA was able to swiftly identify the individuals behind a case of child sexual exploitation.

HSBC Singapore has also recently become a part of a case-specific information sharing project in Singapore under a private-public partnership to improve the collaboration amongst banks and the local authorities to expedite financial crime reporting and action.

If the full benefits of partnerships are to be achieved, there has to be wider support. Banks will have to make the case for data sharing. Customers will need to be confident that banks will continue to prioritise keeping their personal data safe.

Collaboration aided by new technology will enable us to determine whether the behaviour of an individual customer presents an increased financial crime risk, close to the time when a transaction takes place.

Technology in the wrong hands has helped to enable financial crime. It is only by harnessing technology and greater partnerships that we can prevent it.

A contribution piece by Jamil Ahmed, Head of Financial Crime Compliance, HSBC Singapore. A version of this piece was first published in The Business Times on 9th April 2019.

1 https://www.straitstimes.com/singapore/sporean-accused-of-helping-n-koreans-evade-us-sanctions

2 https://rusi.org/publication/occasional-papers/role-financial-information-sharing-partnerships-disruption-crime

3 https://www.straitstimes.com/business/banking/fighting-financial-crime-with-data-analytics

4 UK (Joint Money Laundering Intelligence Taskforce), Hong Kong (Fraud and Money Laundering Intelligence Taskforce), US (USA PATRIOT Act), Singapore (Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership), Canada (Project Protect) and Australia (Fintel Alliance)

5 https://blogs.wsj.com/riskandcompliance/2018/09/04/top-cop-wanted-to-head-new-u-k-economic-crime-center/